The Uniform Prudent Management of Institutional Funds Act (“UPMIFA”), and its
predecessor Uniform Management of Institutional Funds Act (“UMIFA”), were
designed by the National Conference of Commissioners on Uniform State Laws (“NCCUSL”)
to provide guidance and authority to charitable organizations concerning the
management, investment, expenditure, and delegation of management and investment
duties of funds held by such organizations. UMIFA, which was approved by NCCUSL
in 1972, was enacted in forty-seven states. UPMIFA, which was approved by NCCUSL
in 2006, has been enacted by twenty-four states and the District of Columbia so
far and introduced as legislation in eight other states.
Like UMIFA, UPMIFA applies to all charitable organizations except charitable
trusts that are managed by a commercial or individual trustee rather than a
charity. UPMIFA expands on UMIFA and provides a more unified basis for
charitable fund management by adding express standards for management and
investment decisions, expenditure decisions, and the delegation of management
and investment duties. UPMIFA also changes the ability to release or modify
restrictions on funds. UPMIFA is retroactive and applies to already existing
funds held in any form. However, UPMIFA only governs decisions made or actions
taken after its enactment date.
Management and Investment. UMIFA required an institution to exercise
ordinary business care and prudence in making investment decisions. UPMIFA
modifies this general obligation to direct a charity to consider its management
and investment decisions in relation to the whole economic situation of the
institution and its charitable purposes. It enumerates eight factors for
consideration in management and investment decisions, including (1) general
economic conditions, (2) the possible effects of inflation or deflation, (3) the
expected tax consequences, (4) the relation of each investment to the entire
portfolio, (5) the expected total return, (6) other resources of the
institution, (7) the need for distributions and preservation of capital, and (8)
any special relationship of the asset to the institution’s charitable purposes.
UPMIFA also adds several requirements to UMIFA. UPMIFA requires prudence in
cost management and allows only “appropriate and reasonable” costs. It adds a
duty to investigate the information used in management and investment decisions.
It allows institutions to pool funds for investment and management purposes. It
emphasizes that investment decisions must be made in relation to the whole
portfolio. UPMIFA requires diversification of assets and re-balancing of the
portfolio after receiving new assets. For advisors with special skills, it
raises the standard of care to a level consistent with those skills.
Expenditures. UPMIFA updates the rules governing expenditures to
acknowledge changes in asset management theory and practice. Whereas UMIFA
limited expenditures to the historic dollar value, UPMIFA abolishes the historic
dollar value limitation on expenditure. The retroactivity of UPMIFA allows
institutions to avoid having to use multiple accounting systems for the same
fund. UMIFA allowed only the net appreciation to be spent for the purposes of an
endowment, but UPMIFA authorizes a prudent total return expenditure standard.
This more precise standard requires an institution to act in good faith with the
care of an ordinarily prudent person in like circumstances after consideration
of seven factors, similar to those applying to management and investment
decisions. The factors include (1) the fund’s duration, (2) the fund’s and
institution’s purposes, (3) general economic conditions, (4) the effects of
inflation or deflation, (5) the expected total return, (6) other resources that
are available to the institution, and (7) the institution’s investment policy.
As drafted by the NCCUSL, UPMIFA includes an optional provision that creates
a rebuttable presumption of imprudence if expenditures go over 7% of a fund’s
fair market value averaged over a period of at least the last three years. Of
the twenty-five enactments of UPMIFA so far, only seven states have included
this optional provision.
Delegation. Under UMIFA, an institution was permitted to delegate
management and investment decisions without being held to an express standard in
such delegations. UPMIFA sets forth the standard of acting in good faith with
the care of a prudent person. This standard applies to the selection of an
agent, the establishment of the scope and the terms of the delegation, the
supervision of the agent, and the periodic review of the delegation. UPMIFA
expressly states that the agent has a duty of reasonable care and is subject to
the jurisdiction of the court of the state in all proceedings related to the
delegation or the agent’s performance. UPMIFA also specifically permits
delegation to an institution’s officers, committees, or employees, as may be
authorized by the state’s other laws.
Restrictions. In general, UMIFA and UPMIFA both respect the donor’s
intent by allowing donors to express restrictions in the gift instrument. UPMIFA
emphasizes this respect for the donor’s intent by allowing the gift instrument
to restrict or modify any of the provisions in UPMIFA regarding management,
investment, and expenditure decisions and delegation of such decisions.
UMIFA provided for the ability of a court to release such a restriction on a
fund, but only if the restriction was obsolete, inappropriate, or impracticable.
UPMIFA expands this ability and allows a court to release or modify a
restriction if it is impracticable or wasteful, if it impairs the management or
investment of the fund, or if because of unanticipated circumstances the purpose
would be furthered by modification. UPMIFA also allows the purpose of a fund to
be modified by a court if the purpose becomes unlawful, impracticable,
impossible, or wasteful. In all situations, UPMIFA includes the same requirement
as UMIFA of notice to the Attorney General.
UPMIFA also adds a new ability of an institution to release or modify a
restriction on a fund without involvement of the court if the fund is of a
certain size, has been held for a certain number of years, and continues to be
used in a manner consistent with the original purpose. The institution is only
required to give notice to the Attorney General sixty days in advance of the
release or modification. UPMIFA suggests that the value of the fund be less than
$25,000 and the number of years be twenty, but these numbers may be determined
by each state enacting UPMIFA.
These sections of UPMIFA clarify that the doctrines of cy pres and deviation
apply to funds held by nonprofit corporations as well as to funds held by
charitable trusts. In general, the Attorney General continues to be the
protector of donor’s intent and the public’s interest in charitable funds since
neither UPMIFA nor UMIFA require an institution to notify the donor before the
release or modification of a restriction.
Overall, UPMIFA upgrades UMIFA by strengthening the rules governing the
management, investment, and expenditure decisions regarding charitable funds and
providing more guidance to charitable institutions. More information is
available at www.upmifa.org.